An Interpretation of the ratios for Marks and Spencers and the House of

An Interpretation of the ratios for Marks and Spencers and the House of Fraser Findings ======== This section of the report will be composed of an interpretation of the ratios for both companies. All ratios that form the ratio analysis will be explained, and any trends from within ratios will be highlighted. OVERALL PERFORMANCE Return on Capital Employed: Net profit before tax and interest x100 = % Capital employed The Return on Capital Employed ratio (R.O.C.E) is a hugely significant ratio, and a great deal can be taken from this ratio. The ratio relates to the profit earned in relation to the long-term capital invested in the business. The term 'capital employed' in this equation means the owners' capital plus any long term liabilities (for example long-term loans). This ratio shows the % return on capital invested in the company. A business will aim to have this ratio as high percentage as possible. If the percentage return on capital invested is less than that offered elsewhere, then it may be wise to close the business and invest elsewhere. The ratio analysis shows that Marks and Spencer saw a slight drop on their R.O.C.E from 1999 to 2000, however, they managed to increase the R.O.C.E the following year. The next year, 2002 shows the most significant changes. The R.O.C.E increased from 9.61% in 2001, to 20.89% in 2002. This is almost a 120% increase on R.O.C.E. The House of Fraser had a slightly better R.O.C.E than Marks and Spencer in 2000, however, the following year they experienced a drop of around 1.5%. The result for 2002 shows that The House of Fraser managed to almost double their R.O.C.E from 8.6% in 2001 to 15.91% in 2002. Although this was a healthy increase, The House of Fraser currently have a R.O.C.E th... ...tly. The company needs to be more flexible with the volume and style of clothing they stock. People are much more fashion conscious than they used to be, it is essential for the credibility of a company that they are consistently at the height of fashion. The results for the debtor's collection period for Marks and Spencer are very worrying, especially when compared to The House of Fraser. Marks and Spencer need to dramatically reduce the collection period in order to avoid any problems in the future. Marks and Spencer currently offer their customers the option of having a store card. Although in theory, this is a good idea, especially form a marketing perspective; it can cause many problems in the long run. Customers can leave payment for long periods of time. This leads to Marks and Spencer not being paid for stock they no longer own, and should have been paid for.